Whether you are the CEO of a large company, handpicked for that position by a board of directors, or the CEO of a company where the job description simply reads “Do everything and do it well”, there is value and responsibility that come with the position. CEO life insurance can mean several things, but ultimately it can mean the difference between a company living or dying along with the CEO.
For CEO life insurance, you need to know that
1. When you become a CEO it very often means that your income changes with your new responsibility. It’s time to review your personal insurance and make sure that if something happens to you, your beneficiary receives income replacement that reflects reality.
2. As the CEO of a publicly held company you are very often a major stockholder. In many situations you are partially paid or receive bonuses with stock in the company. Depending on the extent of stock ownership it might be a prudent move for the company to have life insurance in force on you that would allow them to do a stock buy back of your equity in the company from your beneficiary.
3. As the CEO of a smaller company you may also be a partner. One of the most important life insurance business tools for a partnership is a buy/sell agreement funded by life insurance policies on all partners. This allows the surviving partner to take control of the company by purchasing the deceased’s share of the company from the family. Like all insurance this type of plan should be reviewed routinely to make sure it reflects the true value of the company.
4. The CEO is almost without exception a key person in the company. CEO life insurance is good planning to make sure a company doesn’t go into a tailspin if the CEO dies. It can provide necessary capital that may dip if sales go down. It can provide funds for recruiting a new CEO. A key person is often the one person that makes the company successful. Leaving to chance the impact their death could cause is not prudent thinking.
5. The use of cash value policies as both protection and retirement bonusing isn’t as prevalent as it used to be, but many companies still use it. The policy serves as key person insurance while the CEO is still with the company and the cash value is added to their retirement compensation package. The fact that there aren’t as many long term employees, including CEO’s, is one reason this isn’t used as frequently as it used to be.
Bottom line. CEO life insurance is a topic rather than a product. It’s business life insurance that can mean the survival of a company. The one thing to keep in mind is that the death of the head of a company will have an impact and a life insurance based succession plan is just good planning.